Welcome to EV's point and figures. This blog is dedicated to the use of point and figure charts in technical analysis.

Although P&F first appeared in charts in the 1930's, it is an often overlooked techique for analysing stocks and charts. A poor relation compared to line and bar charts and their range of momentum indicators. Yet few charts provide a clearer picture of the daily battle between bulls and bears for market control.

Like most methods, it should not be used in isolation. It should form part of an analysts 'tool box' and be used with other techniques to help form an overall view.

The charts that appear on this blog and any accompanying comments are purely for information purposes only - my own personal take on where the prices may be heading. They do not constitute investment advice.

Thursday, October 6, 2011

In broad terms I still see the FTSE trending lower but in the short term, will we get a 'high pole' back up towards 5,800, similar to that seen in 2010? That is the question. You can see the 'high pole' to the left of this 50x3 HL chart (4th column in with the 3 and in it - Mar, Apr). A big move up immediatley followed by a immediate 50% retrace which in this case became 100%. At present, the 6.150 target to the upside is still active and it can be seen that so far the index has not violated the 4,750 low from August. The rally we have seen in the last two days is a continnation of the recent pattern of sharp moves down, followed by quick rallies but the point to note is the lower highs and lower lows - bears are coming back in at lower levels and pushing the market down. This may not continue but it suggests the bears are in control. The move through 4,950 during the last sell off has activated 4,050.

If we strip out more noise, this 100x3 (100 points per box, 300 point move to reverse into a new colunm, we can see that here too the bears have been gaining ground. Initial reistance at 5,400, then new lows with each downward move. Both those targets to the downside are active but again, will we get some short term spike up to 5,800, keeping the symmetary of the pattern?

And here is a 50x3 chart using the 'closing price' method (ie the chart is plotted based on the closing market level only, not the intra day high low. It strips out the intra day volatility). This one is quite interesting because it shows the August closing low has been violated by the most recent sell off. There are currently no active targets to the upside there are active targets of 4,650 (not shown) and 4,450. I've circled the 'high pole' here in purple - the chart has a great symmetary about it so as the right shoulder forms, will we get another high pole. At present, the chart is saying no but that may of course change as it develops.

And using a more traditional candle chart, if this is a forming right shoulder, it lends itself to a higher level. As I calculated in a previous post using the 50x3 PF, a 78.6% retrace from the top (6050) to bottom (4800) comes out at 5,782, which is reasonably close). This assumes of course that we get a 'perfect' head and shoulder pattern.

So overall the PF charts are currently showing be bears still have it but watch out for a high pole.

Tuesday, October 4, 2011

Initial support at 32.5 and now at the higher 40. The move through 57.5 activated that target to the upside of 85. It could be achieved in one single column but noting the previous reversal at 67.5 (from that high column of X's off the bottom), we may see a three box reversal to the downside first. Needs keeping an eye on to see how the pattern develops, but 85 is the target.

A lot of these patterns are developing faster than I can update them but here's the current read. These are all daily, high/low charts, so all 'bigger picture'.

Starting with the Dow (100x3) the 9,600 target is active and there is a target of 8,800 which is not active - need to see the index move below 10,500 to activate it. To the upside, the target of 12,700 is not active. We would need to see a three box reversal and a move up through the previous high of 11,300.

.The declines in the S&P 500 (10x3) since last Thursday have activated a new target to the downside of 920 and (as with the Dow). I still like the 1,040 target, as it was the first one given from the high. I can put an 'uber-bearish' target of 650 on the index, on the grounds that the index has breached the level where it previously found support. It may never be achieved (not all these targets are) but its a valid target nonetheless.

. The falls from last Thursday give a new active targert of 2,040 on the Nasdaq (20x3) but note the index is currently perched at a level where it found support on two previous occasions. No obvious targets to the upside.

.Both these targets on the RUT (10x3) are active.

.The Hong Kong (250x3) market continues to grind lower - so much for international diversification!

.Still looks like a forming head and shoulders on the FTSE 100 (50x3) chart. I missed in on the labelling but there is in fact a target to the upside of 6,000 on the index, given by the most recent columns of X's. It is not active - we would need to see the FTSE reverse higher and take out 5,350. To the downside, 4,500 is active, while 4,050 and 2,500 are not (unlike the Dow and SPX, it can be seen the FTSE has yet to make a lower low from the Aug sell off).

.The CAC 40 (50x3) has an active target to the downside of 2,350 (2,950 from the high was met) and there is currently a target to the upside of 3,750 which is not active. The bulls would need to push the index through 3,050, where it has recently met resistance on two occasions.

.And finally, on a slightly more positive note. the DAX (100x3) seems to have found some short term support at 5,000 and there is an active target to the upside of 6,800. A reversal and move through 5,800 would lend support to this target, as we would then have higher highs, higher lows (ie a double top with a rising bottom and also a triple top buy signal).

Monday, October 3, 2011

Standard Chartered is arguably one of the 'better' banks listed on the LSE. The main focus of its business is towards the growth markets of Far East Asia (where it has its origins). It was sucked down with the other banks in the 2008 financial crisis despite having no great exposure to sub prime mortgages and more recently has been at pains to state it has negligible exposure to PIIG sovereign debt!

But once again it finds itself guilty by association, dragged down with the sector and clearly susceptible to a slow down in the Far East. Having reached a high of 1975p in late 2010, the shares have moved progressively lower and today achieved that 1225p price target from the high (a decline of 38%). The recent price action suggests the pace of decline has slowed a tad (ie falls of around 125p before the bulls come back in and reverse the column) but for now the bears have control. But that's not all............

..........what is also interesting/surprising/shocking/depressing is not one of the 34 analysts who cover the stock has placed a sell recommendation on the stock, at any time in the last 18 months!

These patterns need a bit more time to develop but in general terms the most obvious observation here is that BLT is sitting right on its long term support.

On the 25x3 HL chart, we do actually have a new lower low (denoted by the red 0). There is an active target to the downside of 1575p and a new targert of 1050p, activated by this move below the previous column of 0's.

The reason for wanting to see the patterns develop is because the 50x3 chart has not confirmed a new lower low itself yet - it can be seen that at current levels the stock is right on two lines of previous support. A decisive move below this would activate that 900p price target - the 1450p target is already active.

.To the upside there is a target of 2150p but this is not active. We would need to see a three box reversal to the upside and the new column of X's take out the previous high of 1850p.

By the way, RBS published a research note on BLT today, giving the stock a long term (12 month) 'buy' recommendation and price target of 2725p.